Screen idol

Xiaomi surprises market with cheap smart TV


20 Sep 2013
Week in China

A week before Apple unveiled two new iPhones, Xiaomi – sometimes touted as China’s answer to the Californian tech giant – wowed fans and investors with a new flagship smartphone product of its own. It too is available in multiple colours but costs as little as $325 (compared with Apple’s new “cheaper” iPhone priced at about $738).

At the event Xiaomi also unveiled its first ‘smart’ TV – a new generation of television that can connect to the internet (a product Apple is also rumoured to be developing but has so far yet to launch).

During the glitzy Beijing event, chief executive Lei Jun (whose company we first introduced readers to back in August 2011, in issue 119) said the smart TV will go on sale next month and run on Google’s Android operating system. The 47-inch TV features LCD screens from LG or Samsung and runs on the Qualcomm Snapdragon 600 chip. Lei told the audience it will cost just
Rmb2,999 ($490).

Analysts say Xiaomi's foray into the smart TV sector is based around Lei's strategy to make most of his profits from customers as they continue to use the device, rather than from the sale of the actual hardware

Analysts say Xiaomi’s foray into the smart TV sector is based around Lei’s strategy to make most of his profits from customers as they continue to use the device, rather than from the sale of the actual hardware (rather as Amazon sells its Kindle e-readers at low prices but makes most of its money later through the sale of e-books for them).

Lei is also betting that his smart TVs will generate sales from online video gaming. As documented in previous WiCs, sales of games and virtual gifts are substantial in China. Tencent, the largest internet firm by market cap (this week its stock market value breached $100 billion for the first time), sold $5 billion worth of them last year.

Lei’s detractors say that monetizing Xiaomi’s televisions is not going to be so straightforward. Even though it has made some headway in mobile games (see WiC207) it may struggle to convince developers to make videogames for its smart TV.

Lei's detractors say that monetizing Xiaomi's televisions is not going to be so straightforward

“For a start, the games operate very differently on phones than on TV. Mobile games are much easier to play on screen but video games require other equipment like a motion-sensing remote control. At this stage of development, many game makers will be reluctant to invest a lot in a platform that has yet to prove successful,” predicts 21CN Business Herald.

Others point to the differences between the phone and TV markets. “The life cycle for a TV is much longer than a handset. Many mobile users get a new phone every year but TVs are durable consumer products so no matter how cheap they are, the product cycle is much longer. Sales will definitely be constrained,” says Wang Jung at Analysys International.

The market for smart TVs is a lot smaller too. About 23.9 million are forecast to be sold in China this year, up at least 40% from a year ago. But that doesn’t seem such a big number when you consider that the Chinese are likely buy more than 301 million smartphones in the same period, says technology research firm IDC.

Nor is Xiaomi the only player in the market, which is looking increasingly crowded. Back in June Lenovo announced that it has co-developed a smart TV with Sharp, a leading LCD panel manufacturer. Baidu has also announced a tie-up with TV maker TCL to launch a 48-inch smart TV (which will feature content from its online video site iQiyi). Another video site Youku Tudou is reportedly working on its own branded internet TV. LeTV has one too (see WiC209).

That entire group will also be fearful of Alibaba, China’s largest e-commerce firm, which has plans to roll out two new smart TVs in October with the cheapest one priced much lower than Xiaomi’s at Rmb1,999. Of course, Alibaba will try to take advantage of its dominant e-commerce and online payment assets like Tmall, Taobao and Alipay to allow users to shop and pay bills via their televisions. An app store for video games and music streaming service also comes preloaded on the devices.

It looks like an all-out smart TV war is brewing. Can Lei Jun win it?

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